The falls of JJB sports

 In the reality, it is hardly to support capital of company by self-own finance or it is hardly to earn large profit by small capital of company. Hence, the external finance is very useful to expand the scale of company and achieve larger profit. The external finance is mainly included in debt and equity. However, issuing the debt and equity will be involve interest much be paid, but the cost of debt is cheaper than equity. By comparison, more equity will bring more return for company.

Therefore, issuing the debt and equity must be involved the risk problem for organization. The high gearing level increasing the risk for company and the low gearing level is decreasing profit. In order to achieve the maximum of shareholder value, balancing the risk as low as possible and make the profit as much as possible is an essential issue for managing finance. Hence, the calculation of WACC is a best way to find the balancing point between risk and cost of capital. On the other hands, the business risk is an important for managing business such as the risk of exchange rate and the risk of environment. But some of risk is uncontrollable for management team and they can only avoid it. However, the risk from finance is obviously controllable.

In case of JJB Sports, it is a well-known brand on High Streets and the main selling is sportswear. In last year, they have achieved the combined value of JJB Sports' shares totaled £500m, but its shares being suspended on 1^st Oct it was just worth £1.2m.

The woe of debt is a main reason behind JJB Sports went wrong. In 2007, in order to expand their market, they had brought footwear firm Original Shoe Company and a minority stake in sportswear brand Umbro. JJB Sport had achieved a successful movement which becomes the third sportswear brand behind Sports Direct and JD Sports. They had issued more equity to fill the lack of assets, but it had increased their gearing level, which means that JJB has taken more risk than before. Unfortunately, the economic crisis has occurred in 2008 and they quickly found it in financial difficulties. In order to dealing with the financial difficulties, they serviced its expensive debt as profits plunged, and JJB also sold its fitness clubs.

For my point of views, JJB is unnecessary to take a vast amount of money to buy the footwear firm Original Shoe Company and a minority stake in sportswear brand Umbro. This movement is too risky for an organization. According to JJB historic finance situation, they are keeping a stable growth before 2008. Too much risk is very possibly to lead company to bankruptcy.

In order to rescue their finance, JJB has had to twice restructure its debts to persuade its shareholders, the charity set up by the founder of US software giant Microsoft to invest them more than £200m. However, JJB was still loss their mount until August.

What’s more, the lackluster management is also the main reason for JJB sports went wrong. The various bosses had led JJB after 2007. The various leadership and strategy is definitely impact JJB to loss their mind as result they made failure in the business.